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Product Market Competition and Agency Conflicts: Evidence from the Sarbanes Oxley Act

Posted: 19 Mar 2008 Last revised: 23 Nov 2015

Vidhi Chhaochharia

University of Miami

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah

Roni Michaely

Johnson@Cornell Tech, Cornell University

Date Written: July 2012

Abstract

We use the Sarbanes Oxley Act (SOX) as a natural experiment of a shock to internal governance to examine the link between product market competition and internal governance mechanisms. Consistent with the notion that product market competition is a close substitute for internal governance, we find that firms in concentrated industries experienced a larger improvement in operational efficiency after the approval of SOX than did firms in non-concentrated industries. These gains in efficiency appear to come from a significant reduction in production and administrative costs. Several robustness tests confirm that our main results are not driven by unobservable factors unrelated to changes in corporate governance.

Suggested Citation

Chhaochharia, Vidhi and Grullon, Gustavo and Grinstein, Yaniv and Michaely, Roni, Product Market Competition and Agency Conflicts: Evidence from the Sarbanes Oxley Act (July 2012). Available at SSRN: https://ssrn.com/abstract=1109225 or http://dx.doi.org/10.2139/ssrn.1109225

Vidhi Chhaochharia

University of Miami ( email )

514 Jenkins Building
Miami, FL 33124
United States

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Yaniv Grinstein (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Roni Michaely

Johnson@Cornell Tech, Cornell University ( email )

111 8th Avenue #302
New York, NY 10011
United States

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